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In relative valuation, the value of an asset is compared to the values assessed by the market for similar or comparable assets. To do relative valuation then,
Valuation applies the same definitions—“relative value” is the value of a security or asset determined by comparing the valuation metrics of other similar securities or assets. Analogously, similar securities or assets represent a “family” or “things with particular characteristics”—a common technical term is a “peer.”
What is relative valuation? n In relative valuation, the value of an asset is compared to the values assessed by the market for similar or comparable assets. n To do relative valuation then, • we need to identify comparable assets and obtain market values for these assets • convert these market values into standardized values , since the ...
In relative valuation, we value an asset based upon how similar assets are priced in the market. A prospective house buyer decides how much to pay for a house by looking at the prices paid for similar houses in the neighborhood.
In economics money is de–ned as an asset (a store of value) which functions as a generally accepted medium of exchange, i.e., it can be used directly to buy any good o⁄ered for sale in the economy.
Values can be standardized relative to the earnings firms generate, to the book value or replacement value of the firms themselves, to the revenues that firms generate or to measures that are specific to firms in a sector.
In relative valuation, the value of an asset is compared to the values assessed by the market for similar or comparable assets. Need to identify comparable assets and obtain market values for these assets. Convert these market values into standardized values, since the absolute prices cannot be compared.
